Rail freight deal doesn't work: CBH

Rail freight deal doesn't work: CBH

Agribusiness
The CBH Group has argued the failure so far of more than five years of negotiations on a long term agreement for its grain trains (above) prove the State's rail freight network access regime does not work.

The CBH Group has argued the failure so far of more than five years of negotiations on a long term agreement for its grain trains (above) prove the State's rail freight network access regime does not work.

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Australia's biggest grain exporter, CBH Group has told State Treasury its fee to access WA's rail network for grain trains, which move about eight million tonnes or 60 per cent of the State's grain to port a year, costs growers about $7.40 a tonne.

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RAIL costs up to five times more than Eastern States grain growers pay and a "fundamentally flawed" rail freight access regime threaten the international competitiveness of WA's almost $4 billion a year grains industry.

Australia's biggest grain exporter, CBH Group has told State Treasury its fee to access WA's rail network for grain trains, which move about eight million tonnes or 60 per cent of the State's grain to port a year, costs growers about $7.40 a tonne.

The access fee is paid to network lessee Arc Infrastructure, formerly Brookfield Rail, a subsidiary of Canadian-based rail, road and port logistics, energy and gas storage and transmission conglomerate Brookfield Infrastructure Partners which took control of the State's privatised 5500 kilometres of standard gauge, narrow gauge and dual gauge freight lines west of Kalgoorlie in 2010 and holds a lease of the network for the next 30 years.

The network access fee equates to about half of growers' total rail freight costs - through CBH growers also pay a tonnage per kilometre fee - and 8.5pc of the entire supply chain to customer fee, CBH told Treasury.

Eastern States grain growers also benefit from grain trains carrying heavier loads at faster speeds than track conditions in WA allow, it said.

Despite higher rail charges, the efficiency of the rest of its supply chain allowed CBH to ship WA wheat into Indonesia - its main and closest contestable market - at $267/t delivered, $39/t cheaper than the Eastern States can deliver, it pointed out.

But WA's main international competitors can deliver their wheat into Indonesia at up to $67/t more cheaply, it said.

CBH told Treasury Black Sea wheat - growers in the Krasnodar district produce on average 6t per hectare compared to 2t/ha average in WA and the annual harvest is more than 100 million tonnes compared to 14-16mt in WA - can be delivered to the same customers for $200/t.

The Ukraine could deliver wheat into Indonesia $41t cheaper than WA can, Russia $34t cheaper and Argentina $27t cheaper, it said.

CBH said it used 2400km, or about half of the State's rail freight network, so it comprised "one of the most significant pieces of infrastructure in the WA grain supply chain".

The grains industry was the largest agricultural sector in WA and the fourth largest export industry overall, with its 4000 grain grower members producing an average of 14.7mt of grain and contributing almost $4 billion to the State's economy each year, CBH pointed out.

It reminded Treasury it has been in dispute with Arc and its predecessor Brookfield for more than five years over access fees and usage charges in an attempt to negotiate a long-term arrangement under the existing regime defined by the Railways (Access) Act 1998 and Railways (Access) Code 2000.

As previously reported in Farm Weekly, CBH is the only rail user to attempt to negotiate an access agreement with Arc under the formal regime in the 19 years the regime has existed.

CBH's original access arrangements - it bought its own fleet of locomotives and purpose-built grain wagons in 2010 to help cut rising freight costs - and those of all other freight network users have been negotiated outside of the formal regime originally supposed to protect commercial interests of both users and lessee.

CBH began the process in October 2013 and after Brookfield withdrew 500km of Tier Three grain lines from service on June 30, 2014, it formerly notified the administrator of the regime, the Economic Regulation Authority (ERA), an access dispute existed.

At one stage CBH was forced to remove grain trains from the network for 24 hours and marshal them in the Avon and Kwinana yards, the only sections of track it owns, after an interim access agreement expired and it and Brookfield could not agree on the then $6 million-a-month fees and charges to apply while they continued negotiating a long-term agreement.

This month marked the third anniversary of CBH and ARC entering an arbitration process conducted under the Arbitration Act 1996 - as the final requirement of the access regime - aimed at resolving their differences over a 10-year rail network access agreement.

Discussion between CBH and Arc is mediated by retired Federal Court judge Kevin Lindgren QC who flies from his Sydney home to Perth, with the costs shared between CBH and Arc.

Under the Arbitration Act, the negotiations and even any eventual resolution is strictly secret unless all parties agree on precisely what can be made public.

CBH's views on the rail access regime were contained in its latest submission to Treasury on a draft decision paper proposing 16 recommendations to the State Government on changes to the regime.

The access regime is required to be reviewed periodically and Treasury released an issues paper in July 2017 to which it received 14 submissions.

Based on those submissions, Treasury released a draft decision paper last December and submissions on that closed last month.

CBH's submission was particularly critical of the ineffectiveness of the Railways (Access) Code 2000.

"As discussed in previous submissions, CBH estimates that WA grain growers are paying up to five times more than what growers in eastern Australia pay for track access," CBH stated in its submission.

"Efforts to use the code to negotiate a long-term and cost-effective access agreement with Arc Infrastructure have also been lengthy, frustrating, and remain unresolved after more than five years since access was first sought.

"Self-evidently therefore, the current regulatory regime clearly does not provide satisfactory certainty or financial and operational security for CBH or its grower members.

"In particular, the code is fundamentally flawed and not achieving its objectives.

"Significant reform is therefore required in order to ensure that the code promotes access to the railways covered by it.

"To that end, CBH supports changes to the regime that: (a) bring about substantial and immediate changes to the pricing mechanisms in the code; (b) encourage the efficient use of rail transport; (c) introduce greater transparency in the system; and (d) prevent the code being misused to delay or frustrate the process of obtaining or continuing access."

The submission pointed out "the economic prosperity of the State is intrinsically linked to the success of the WA grains industry".

"To ensure the ongoing competitiveness of the industry, it is vital to have domestic regulatory settings that keep downward pressure on export supply chain costs.

"There are 30 years remaining on the lease of the WA rail freight network - this review provides a moment in time for significant and effective reform of a WA rail regulatory regime that underpins effective access to a key piece of State infrastructure that is crucial to the future viability of WA's grain growers, the grain industry and the State," it said.

CBH's submission and its calls for changes to specific aspects of the rail access code and amendments to the draft decision paper were reinforced in supporting submissions from WAFarmers, Wheatbelt Railway Retention Alliance (WRRA), WA Local Government Association (WALGA) and Shire of Kondinin.

Wheatbelt grain growers Colin Nicholl, Hyden, Bob Iffla, Lake King, Trevor De Landgrafft, Newdegate, Paul Green, Hyden, Dean Sinclair, Varley and Josh Whitwell, Hyden, made a joint submission supporting more equitable rail costs to align more closely with investment and cost savings in other areas of the grain supply chain.

The Tier Three lines and any other rail lines not being used should be surrendered by Arc to the State Government, the growers maintained, so they could be offered to rail users who may be interested in taking them over.

Bruce Rock farmer, WRRA co-ordinator and wife of a CBH director, Jane Fuchsbichler, also made a personal submission.

Her submission and Kondinin Shire's submission called for a WA freight costs study and pointed out, along with WALGA's submission, grain on rail cost was competing against road transport cost at an unfair disadvantage.

They pointed out the rail access regime required full cost recovery - operating and capital cost - on each grain route, including a commercial rate of return to Arc.

However, road transport carting grain paid only a portion of the cost of providing and maintaining heavy vehicle routes, with the costs shared by other road users and tax payers generally.

Kondinin Shire pointed out, if rail freight costs were allowed to become uncompetitive with road freight, moving grain from the Kondinin, Corrigin and Kulin storage sites to Kwinana would add an extra 7400 truck movements to Brookton Highway.

Treasury officials have said they hope to submit their final report to Treasurer Ben Wyatt by the middle of the year.

Changes were made to the access regime after an initial review in 2005 but further reviews by the ERA in 2011 and 2015 resulted in recommendations to government that were not acted upon.

The December 2011 ERA review report made eight recommendations, including changes to improve availability of information for prospective users and to costing principals, to Christian Porter as treasurer.

The December 2015 ERA review report to Mike Nahan as treasurer made 10 recommendations, including adding to the improved information availability and transparency proposed four years earlier and introducing a seven-day time frame for information provision.

It also proposed changes to the arbitration system, replacing the controversial Gross Replacement Value system used in determining a 'floor' and 'ceiling' access price range for negotiation with a more equitable Established Asset Base valuation and operating the Kalgoorlie-Kwinana standard gauge line under the same access regime approved by the Australian Competition and Consumer Commission for the standard-gauge line east of Kalgoorlie.

The draft 16 recommendations of the current review incorporate most of the recommendations from the previous two reviews but no longer call for a common standard gauge line access regime.

One of the new recommendations from the current review would require Arc to publish service quality indicators at regular intervals.

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